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The Buck Stops Where? The Distribution of Agricultural Subsidies

In: The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies

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Author Info

  • Barry K. Goodwin
  • Ashok K. Mishra
  • François Ortalo-Magné

Abstract

The U.S. has a long history of providing generous support for the agricultural sector. A recent omnibus package of farm legislation, the 2008 Farm Bill (P.L. 110-246) will provide in excess of $284 billion in financial support to U.S. agriculture over the 2008-2012 period. Commodity program payments account for $43.3 billion of this total. Our paper is concerned with the distribution of these benefits. Farm subsidies make agricultural production more profitable by increasing and stabilizing farm prices and incomes. If these benefits are expected to persist, farm land values should capture the subsidy benefits. We use a large sample of individual farm land values to investigate the extent of this capitalization of benefits. Our results confirm that subsidies have a very significant impact on farm land values and thus suggest that landowners are the real benefactors of farm programs. As land is exchanged, new owners will pay prices that reflect these benefits, leaving the benefits of farm programs in the hands of former owners that may be exiting production. Approximately 45% of U.S. farmland is operated by someone other than the owner. We report evidence that owners benefit not only from capital gains but also from lease rates which incorporate a significant portion of agricultural payments even if the farm legislation mandates that benefits must be allocated to producers. Finally, we examine rental agreements for farmers that rent land on both a cash and share basis. We find evidence that farm programs that are meant to stabilize farm prices provide a valuable insurance benefit.

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This chapter was published in:

  • Joshua S. Graff Zivin & Jeffrey M. Perloff, 2012. "The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies," NBER Books, National Bureau of Economic Research, Inc, number perl10-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12107.

    Handle: RePEc:nbr:nberch:12107

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    Cited by:
    1. repec:fip:fedkrw:rwp2013-07 is not listed on IDEAS
    2. Kropp, Jaclyn D. & Katchova, Ani L., 2011. "The Effects of Direct Payments on Liquidity and Repayment Capacity of Beginning Farmers," Staff Papers 164516, University of Kentucky, Department of Agricultural Economics.
    3. White, T. Kirk & Hoppe, Robert A., 2012. "Changing Farm Structure and the Distribution of Farm Payments and Federal Crop Insurance," Economic Information Bulletin 120309, United States Department of Agriculture, Economic Research Service.
    4. Christophe Gouel, 2013. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Working Papers 18934, National Bureau of Economic Research, Inc.
    5. Ifft, Jennifer & Cooper, Joseph C. & Kuethe, Todd H., 2012. "The Impact of Risk and Farm Program Design on Cash Rents," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124334, Agricultural and Applied Economics Association.
    6. Jeremy G. Weber & Jason P. Brown & John Pender, 2013. "Rural wealth creation and emerging energy industries: lease and royalty payments to farm households and businesses," Research Working Paper RWP 13-07, Federal Reserve Bank of Kansas City.
    7. Feichtinger, Paul & Salhofer, Paul, 2013. "A Spatial Analysis of Agricultural Land Prices in Bavaria," Factor Markets Working Papers 162, Centre for European Policy Studies.
    8. Hendricks, Nathan P. & Janzen, Joseph P. & Dhuyvetter, Kevin C., 2012. "Subsidy Incidence and Inertia in Farmland Rental Markets: Estimates from a Dynamic Panel," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(3), December.
    9. Feichtinger, Paul & Salhofer, Klaus, 2011. "The Valuation of Agricultural Land and the Influence of Government Payments," Factor Markets Working Papers 112, Centre for European Policy Studies.

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